European stocks fall as concerns about Omicron variable ignite

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Global stock markets and oil prices fell on Tuesday, while investors halted liquidity in high-quality government bonds, as concerns over the Omicron coronavirus variable dominated trading.

Europe’s regional stock index Stoxx 600, which had rallied on Monday alongside Wall Street stocks to reflect a wave of optimism that market volatility triggered by Omicron would become a buying opportunity, fell about 1.3 per cent along with Britain’s FTSE 100 index. The French Dax and Cac 40 fell by roughly the same amount.

Futures that track the S&P 500 gauge on Wall Street fell 1.1 percent. In Asia, Hong Kong’s Hang Seng fell 1.6 percent and Tokyo’s Nikkei 225 lost 1.6 percent.

The steps came after Stephan Bancel, CEO of vaccine maker Moderna, used an interview with the Financial Times to predict that current vaccines would be much less effective at treating Omicron than previous coronavirus strains. He also warned that drug companies would take months to manufacture new variable doses on a large scale.

Brent crude, the international oil standard, lost more than 3 percent to $71.11 a barrel, hitting its lowest level in nearly three months.

Investors widely expect markets to remain volatile as more information emerges about Omicron and the ability of governments and current vaccine programs to contain it.

“I think in the next few weeks the markets will be all about Omicron,” said Patrick Spencer, vice president of equities at RW Baird.

“We’re all moving away from the data,” he added, referring to the scientists’ uncertainty about the severity of symptoms that might be caused by the new variant, which has a very unusual genetic profile.

Wall Street’s VIX, a measure of expected stock market volatility, jumped to 26 on Tuesday from 23 the day before — putting it above its long-term average of 20.

The yield on the 10-year Treasury fell 0.11 percentage point to 1.43 percent, reflecting a sharp rise in the price of the benchmark government debt instrument.

The dollar index, which measures the greenback against another six, fell 0.7 percent as traders backed off bets on how quickly the Federal Reserve would raise interest rates next year.

Although the United States has not detected any cases of Omicron so far, President Joe Biden has predicted that it will appear there.

“The volume of market reaction may continue to increase if we start seeing cases of this variant in the United States,” said Tancredi Cordero, founder and CEO of investment advisory boutique Coros Associates.

“Markets have come to this from a place of complacency,” he added, noting that the S&P 500 and Stoxx had hit record highs earlier this month despite the US central bank’s announcement of starting cuts to its $120 billion per month monetary stimulus. and elevated. global inflation levels.

In prepared remarks ahead of his appearance before Congress later Tuesday, Fed Chair Jay Powell said rising Covid-19 cases and the Omicron variant “pose downside risks to employment and economic activity and increase inflation uncertainty.”

Oil prices, which fell more than 10 percent on Friday, “will not regain all the lost ground until after the end of this year,” said Tamas Varga of BVM oil brokerage.

“This is simply because it will take time to assess the damage caused by the emergence of the latest type of virus.”

Additional reporting by Neil Hume in London

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